OFT move leaves German bid for Boots in doubt

German firm Celesio's plans to gatecrash the £10bn takeover of Alliance Boots were thrown into doubt today when the Office of Fair Trading announced a probe into how medicines are distributed in the UK.

The OFT is concerned that increasing consolidation in the sector could be bad for the public's health. It intends to spend the rest of the year on a high-profile investigation that is likely to make any deal to buy Boots more difficult.

Alliance Boots was formed last year by the £8bn merger of Boots and Alliance UniChem, a deal that had already raised the interest of the OFT. It is now the subject of a £10.1bn bid from Kohlberg Kravis Roberts. The private-equity house said it was unsurprised by today's announcement, which it believes should not affect its plans.

But it could be a serious issue for Celesio, which trades under the Lloyds brand in the UK. Celesio is Boots' main competitor, and any probe into the sector seems likely to conclude that further mergers are not in the public interest. It has hired NM Rothschild to ponder a rival takeover offer for Boots.

The OFT is particularly concerned that drugmaker Pfizer has started selling prescription medicines through just one wholesaler - Alliance Boots. Other drug companies are looking at narrowing their distribution arms, which could affect the prices the NHS and patients have to pay for medicine.

Doctors, chemists and MPs have already voiced their opposition to any takeover of Boots, arguing that a key supplier to the NHS should not be owned by a privateequity house.

OFT director Ann Pope said: 'This is an important market study in one of the OFT's priority sectors.

'Recent changes in the distribution arrangements for some medicines have caused great concern to many in the market. It is important for us to understand the likely impact of these changes on patients and costs to the NHS.'